Personal Credit Report: Business Loan Packaging 101
When an entrepreneur is disorganized and poorly prepared in terms of documentation, financing a business can turn into a drawn-out and unpleasant process. Before presenting the business loan package to the banker, there is an additional level of scrutiny for these documents that needs attention, in addition to the fact that the proper business documents are not readily available and, in some cases, inaccessible.
The business loan package is an extensive compilation of data from both a personal and business perspective that is combined in order to provide the banker and any additional staff members involved in the underwriting process with a solid foundation of the entrepreneur’s business operations. But more importantly, the banker’s recommendation to approve the financing request is primarily based on the business loan package. Though it isn’t the only factor taken into consideration, it does have a significant impact on the banker’s decision to grant a business loan.
The personal credit report is one of the key documents in the package for business loans. Okay, so you might be thinking, “Doesn’t the bank usually produce this document upon receiving a signed business loan application?” Absolutely. However, I advise you to make a copy of your credit report and keep it on hand (i.e. Naturally, as part of the package of business loans. The reason and rhyme for this are as follows: in addition to including a copy of your report, you also need to include a business memo explaining the overall condition and other pertinent info as needed.
Let’s start by comprehending the fundamentals and what it means. Sure, we all enjoy discussing our credit scores (at least those who have scores worth discussing, right? ), but very rarely do you hear someone discuss the information contained in their report. Where the real meat is, though, is in the personal credit report’s content. The components of your personal credit report (i.e. credit types like credit cards, department charge cards, auto loans, other consumer loans, etc.) each have a certain “weight” assigned to them, and the sum of these weights equals your personal credit score. The story that a person’s personal credit report tells about how they handle different types of credit is also significant because it reveals their character. You ask why it’s critical, particularly in terms of getting bank financing. One of the main foundational tenets of credit is character. Only “the sincerity of an individual to comply with the terms and conditions of credit” is mentioned by the character. The personal credit report definitely shapes the business loan request in the banker’s eyes, even though it does not provide a banker with a failsafe method for approving a business loan.
The best course of action for the business owner and entrepreneur is to anticipate this step in the business loan application process and be aware of what information is on their personal credit report. Once they are aware of the information contained in their personal credit report, they can create a business memo that details the good, bad, and ugly (especially the ugly) of their personal credit report for the banker in order to prevent any surprises.
